Q3 2022 Embecta Corp Earnings Call
Speaker 1: The conference will begin.
The conference will begin.
Speaker 2: Please stand by. Welcome, ladies and gentlemen, to the third quarter of fiscal year 2022 earnings conference call for EnVec-de-Corp. At this time, all participants have been placed in a listen-only mode. Please note that this conference call is being recorded, and that recording will be available on the company's website for replay shortly. I would now like to hand the conference over to your speaker today, Mr. Pravese Kendawal, Vice President of Investor Relations. Please go ahead.
Please standby welcome ladies and gentlemen to the third quarter of fiscal year, two that I just wanted to earnings conference call for him back to Corp. At this time, all participants have been placed in a listen only mode.
Please note that this conference call is being recorded and that recording will be available on the company's website for replay shortly.
I'm not hand, the conference over to your speaker today, Mr. Pervez Kendall wall.
Vice President of Investor Relations. Please go ahead.
Speaker 3: Thank you, operator. Good morning, everyone. Thank you for joining our fiscal third quarter 2022 earnings call. With me today are Dev Kudrikar, MBECTA's Chief Executive Officer, and Jake Algooy, our Chief Financial Officer.
Thank you operator, good morning, everyone.
Thank you for joining our fiscal third quarter 2022 earnings calls with Baker, <unk>, <unk>, Chief Executive Officer, and Jay Casually, our Chief Financial Officer.
Speaker 3: Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements within the meaning of the federal securities laws, which may be identified by words like a despicable expect, may believe, estimate, and other similar words. And it is possible actual results could differ from management's expectations.
Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include forward looking statements within the meaning of the factors securities laws, which may be identified by words like anticipate expect may believe estimate and other similar words.
And it is possible actual results could differ from management's expectations.
Speaker 3: As stated in more detail in our accompanying slides, these forward-looking statements include statements concerning our costs and growth opportunities, our cash flow, and expected use, and our financial performance, and also include statements concerning future dividends.
As stated in more detail without accompanying slides.
These forward looking statements include statements concerning our costs and growth opportunities, our cash flow and expected use and our financial performance and also include statements concerning future dividends.
Speaker 3: risks, uncertainties, and other factors that could cause such differences can be found in the company's earning release and latest SEC filings, including the information statement dated February 11, 2022, filed as exhibit 99.1 to the company's current report on Form 8K and Form 10K.
Risks uncertainties and other factors that could cause such differences can be found in the company's earnings release and latest SEC filings, including the information statement dated February 11, 2022, five day exhibit 99, one to the company's current report on form 8-K and Form 10-Qs.
Speaker 3: In addition, we will discuss certain non- GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAP. A recontiliation of these non- GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation.
In addition, we will discuss.
We discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the comparable GAAP measure is included in the press release and conference call presentation.
Speaker 3: Unless otherwise specified, all comparisons will be on a year-over-your-basis versus the relevant period. Revenue percent changes are on an effective basis unless otherwise known.
Unless otherwise specified all comparisons will be on a year over year basis, what is the relevant PTA.
Revenue per se changes are on an FX neutral basis, unless otherwise noted.
Speaker 3: When management refers to any given period, they are referring to the fiscal period unless specifically noted as a calendar.
When management refers to any given period.
Turning to the fiscal period.
Specifically noted aggregating the PTA.
Speaker 3: The earnings press release, slide to a company today's call and webcast replay details are available on the investor relations section of the company's website www.ambector.com.
The earnings press release slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company's website www Dot <unk> dot com.
Speaker 3: Starting on slide three, our plan for today's call is as follows.
Starting on slide three our plan for todays call is as follows.
Speaker 3: That will make a few opening remarks on the overall performance of our...
That will make a few opening remarks on the overall performance of our business.
Speaker 3: Jake will provide you with a more in-depth review of financial results for the third quarter of fiscal year 2021.
Jack will provide you with a more in depth review of financial results for the third quarter of fiscal 2022.
Speaker 3: as well as our updated financial guidance as stated in the ONNX press release issued earlier.
As well as our updated financial guidance as stated in the unexpressed release issued yesterday.
Speaker 3: Dev will then provide some closing thoughts on our strategic imperatives. We will then hope.
Jeff will then provide some closing thoughts on our strategic imperatives.
We will then open the call for questions.
Speaker 3: I would now like to turn the call over to our CEO , Dev Kudikar. Dev?
I would now like to turn the call over to our CEO , Jeff credit card debt.
Speaker 4: Good morning, everyone. And thank you for joining us today for Embector's third quarter of fiscal year 2022 earnings call, which also marks our first full quarter as a standalone public company.
Good morning, everyone and thank you for joining us today for <unk> third quarter fiscal year 2022 earnings call, which also marks our first full quarter as a standalone public company.
Speaker 4: Before we get into the content of today's call, let me also welcome Pradesh Khandavwal, whom you just heard.
Before we get into the content of today's call. Let me also welcome provision.
You just heard.
Speaker 4: Provecius joined us as our VP of Investor Relations.
Provision has joined us as our VP of Investor Relations.
Speaker 4: He was most recently in the West relations at a healthcare company and as prior experience in equity research, we're excited to have him join our team.
He was most recently in Investor relations at a healthcare company and his broad experience and equity research.
Excited to have him join our team.
Speaker 4: Turning to slide 5, let me first start with who we are.
Turning to slide five let me first start with who we are.
Speaker 4: Quite simply, we are an organization with a truly unique opportunity to create the pre-eminent diabetes focused company in the world.
Quite simply we are an organization with a truly unique opportunity to create the preeminent diabetes focused company in the world.
Speaker 4: Our mission is to develop and provide solutions that make life better for people with diabetes. That is our entire focus.
Our mission is to develop and provide solutions that make life better for people with diabetes.
<unk> is our entire focus.
We are the global leaders in the business of injection devices.
Speaker 4: We've been making and selling insulin injection devices for almost 100 years.
We have been making and selling insulin injection devices for almost 100 years.
Speaker 4: are global manufacturing infrastructure and are matched and supported by geographically diverse sales and distribution network.
Our global manufacturing infrastructure is unmatched and supported by geography really diverse sales and distribution network.
Speaker 4: We have built an incredible leadership team to advance our vision of empowering people to live a life unlimited by diabetes.
We have built an incredible leadership team to advance our vision of empowering people to live a life unlimited by diabetes.
Speaker 4: We have recently added to our leadership talent by recruiting experienced leaders for our regulatory affairs R&D and quality function.
We have recently added to our leadership talent by recruiting experienced leaders for our regulatory affairs, R&D and quality functions.
Speaker 4: roles critical for our current business as well as for achieving our longer-term objectives.
It's critical for our current business as well as for achieving our longer term objectives.
Speaker 4: Our global team of 2000 employees have been hard at work, standing up in Bector and driving our business for people with diabetes, for our customers, and...
Our global team of 2000 employees have been hard at work standing up and vector and driving our business for people with diabetes.
For our customers and for our stakeholders.
Speaker 4: Switching to slide 6. Here are our financial and operating highlights for the third quarter of fiscal 2022.
Switching to slide six here, our financial and operating highlights for the third quarter of fiscal 2022.
Speaker 4: We are pleased with the company's strong performance in the quarter. Our first as a standalone public company, amidst the current challenging operating environment, which includes having to navigate through raw material inflationary pressures, iscurging a residue of the hard-working personalEd companies to reach this goal classroom of concur.
We are pleased with the company's strong performance in the quarter, our first as a standalone public company.
Amidst the current challenging operating environment, which includes having to navigate through raw material inflationary pressures.
Blockchain challenges.
Speaker 4: geopolitical concerns, and varying COVID-19 restrictions. This performance reflect-
Political concerns and varying COVID-19 restrictions.
This performance reflects the resilience of our business model.
Speaker 4: the defensive segment in which we operate. And most importantly, the character and determination of our global team that works tirelessly to serve our customers and people with diabetes who use our products.
The defense segment in which we operate and most importantly, the character and determination of our global team that works tirelessly.
Serve our customers and people with diabetes, who use our products.
Speaker 4: An important nuance of this business is that our products are primarily single used disposable products.
An important nuance of this business is that our products are primarily single use disposable products.
Speaker 4: And hence their use is not significantly financially burdensome in contrast with some of the therapy.
And hence the use is not significantly financially burdensome in contrast, with some of the therapies.
Speaker 4: Moving to the financial results for this quarter, M-Becta generated revenues of $291.1 million.
Moving to the financial results for this quarter <unk>.
<unk> generated revenues of $291 1 million.
Speaker 4: This represents a decline of 1.3% on an as-reported basis and growth of 2% on a constant currency basis.
This represents a decline of one 3% on an as reported basis and growth of 2% on a constant currency basis.
Speaker 4: The constant currency revenue growth was primarily driven by higher volume and to a lesser extent price in the United States and in Central and Southeast Asia. I'll comment on geographic revenue breakdown on the next slide in a moment.
The constant currency revenue growth was primarily driven by higher volume and to a lesser extent price in the United States and in Central and Southeast Asia.
Comment on geographic revenue breakdown on the next slide in a moment.
Speaker 4: GAAP gross profit and margin for the third quarter of 2022 totaled $202.9 million and 69.7% respectively.
GAAP gross profit and margin for the third quarter of 2022 totaled $202 9 million and 69, 7% respectively.
Speaker 4: Adjusted growth and EBITDA margins remain robust at 69.8% and 40.5% respectively.
Adjusted gross and EBITDA margins remain robust at 69, 8% and 45% respectively.
Speaker 4: and based on our strong third quarter results and outlook for the remainder of the year, we are raising our financial guidance for constant currency revenue growth, adjusted gross margin, and adjusted a bit of margin for the second half of this fiscal year.
And based on our strong third quarter results and outlook for the remainder of the year.
We are raising our financial guidance for constant currency revenue growth.
The gross margin and adjusted EBITDA margin for the second half of this fiscal year.
Speaker 4: while reiterating or as reported revenue growth guidance despite incremental effects.
While reiterating our as reported revenue growth guidance, despite incremental FX headwinds.
Speaker 4: Additionally, we continue to make progress building up our internal organization, systems, and processes so that we can exit the transition service agreements that we have with Becton Dickinson within the planned time period.
Additionally, we continue to make progress building up our internal organization.
And processes. So that we can exit the transition service agreements that we have with becton Dickinson within the plan time periods.
Speaker 4: And lastly, we continue to advance the development of type 2 closed loop insulin delivery system, utilizing our proprietary patch pump technology.
And lastly, we continued to advance the development of type two closed loop insulin delivery system utilizing our proprietary patch pump technology.
Speaker 4: Now clicking through Geographic revenues on slide 7, third-order US revenues of 158 million increased by 4.1% on both and as reported and constant currency base.
Now clicking through geography revenues on slide seven third quarter U S revenues of $158 million increased by four 1% on both an as reported and constant currency basis.
Speaker 4: International revenues of 133.1 million decreased by 7.1% on an as-reported basis and 0.3% on a constant currency basis.
International revenues of $133 1 million decreased by seven 1% on an as reported basis and <unk>, 3% on a constant currency basis.
Speaker 4: Overall, constant currency growth of 2% was primarily due to an increase in base business volume, in part due to the timing of certain orders within the US.
Overall constant currency growth of 2% was primarily due to an increase in base business volume.
In part due to the timing of certain orders within the U S.
Speaker 4: The impact of contract manufacturing revenue to BD and improved pricing.
The impact of contract manufacturing revenue to BD.
And improved pricing.
Speaker 4: Somewhat offsetting this was a rebate reserve adjustment that occurred in the third quarter of 2021, which did not reoccur in the third quarter of 2022.
Somewhat offsetting this was the rebate reserve adjustment that occurred in the third quarter of 2021.
Which did not reoccur in the third quarter of 2022.
Speaker 4: And while we benefit it from the timing of certain orders this quarter, we continue to focus on the second half business performance at the timing and cadence of order patterns, very squatter to quarter.
And while we benefited from the timing of certain orders. This quarter, we continue to focus on the second half business performance.
At the timing and cadence of order patterns vary quarter to quarter.
Speaker 4: On a year-to-date basis, revenues were 854.9 million.
On a year to date basis revenues were $854 9 million.
Speaker 4: This represents a decrease of 1.1% on an ad report in basis and an increase of 0.8% on a constant currency basis.
This represents a decrease of one 1% on an as reported basis.
And an increase of <unk>, 8% on a constant currency basis.
Speaker 4: Overall, Constance and currency growth was driven by favorable price and volume. Partially offset by the conscious decisions we made during the latter portion of 2021.
Overall constant currency growth was driven by favorable price and volume partially offset by the conscious decisions. We made during the latter portion of 2021.
Speaker 4: to no longer participate in certain business and which we have discussed on our trial call.
To no longer participate in certain business.
And which we have discussed on our prior call.
Speaker 4: With that, we put it over to Jake to discuss our Q3 results and our updated expectations for the second half of this year. Jake. Ben.
With that let me turn it over to Jay to discuss our Q3 results and our updated expectations for the second half of this year.
Jake.
Thank you, Jeff and good morning, everyone.
Speaker 5: Before I have the sufficient result for the three and nine month periods and the June 30th, I would like to remind the investment community that impacted with spun off from B.D. on April 1st of 2022, and that the financial results during the pre-spin period were based on Carboud Accounting Prince.
Excellent results for the three and nine month periods ended June 30.
I'll remind the investment community that impact that was spun off from BD on April one of 2022 and.
And that the financial results during the pre spin period based on carve out accounting principles and do not reflect what impact.
Speaker 5: and do not reflect what impacted the local's would have been, had impacted operated as a standalone public.
<unk> would have been added back to operated as a standalone public company.
Speaker 5: Therefore, financial results for the three and nine month period in June 30th, 2022 and June 30th, 2021. And that is really compare.
Therefore financial results for the three and nine month period.
At June 32022 at June 32021.
Speaker 5: Given the fact that Invecta's historical for the pre-spin periods do not include all the actual expenses that would have been incurred had Invecta been a standalone public company during the periods presented, I plan on focusing most of my time discussing Invecta's recently updated second half of fiscal 2022 financial guidance.
Comparable.
Given the fact that <unk> historical.
<unk> for the preceding periods do not include all the actual expenses would have been incurred add them back to being a standalone public company. During the periods presented I plan on focusing most of my time discussing Baxter's recently updated second half of fiscal 2022 financial guidance.
Speaker 5: Turning to impact this financial performance for the third quarter on sliding.
<unk>.
Turning to <unk> financial performance for the third quarter on slide eight.
Speaker 5: Given the discussion that has already occurred regarding revenue, I will start at the gross profit.
Given the discussion that has already occurred regarding revenue.
I'll start at the gross profit line.
Speaker 5: GAP gross profit and margin for the third quarter of 2022.
GAAP gross profit and margin for the third quarter of 2022.
Speaker 5: total 202.9 million and 69.7% respect.
Totaled $202 9 million and 69, 7% respectively.
Speaker 5: This compares to 202.6 million and 68.7% in the prior year period.
This compares to $202 6 million and 68, 7% in the prior year period.
Speaker 5: The 100 basis point improvement in gap gross margin was primarily due to favorable products.
The 100 basis point improvement in GAAP gross margin was primarily due to favorable product mix.
Speaker 5: This was partially offset by the negative impact of inflation on raw material costs, direct labor,
This was partially offset by the negative impact of inflation on raw material costs direct labor and overhead.
Speaker 5: While from an adjusted gross profit and margin perspective, for the three month ended June 30, 2022, they totaled $203.1 million and $69.8% respectively.
While from an adjusted gross profit and margin perspective for the three months ended June 32022.
A total of $203 1 million and 69, 8% respectively.
Speaker 5: This compares to 206.4 million and 70% in the prior year period.
This compares to $206 4 million and 70% in the prior year period.
Speaker 5: Despite incurring additional costs associated with standing up in BECCA as an independent entity, adjusted gross margin for the third quarter of 2022 came in strong at approximately 70%, and this was better than we previously anticipated.
Despite incurring additional cost associated with standing up and Baxter as an independent entity adjusted gross margin for the third quarter of 2022 came in strong at approximately 70%.
And this was better than we previously anticipated.
Turning to GAAP net income.
Speaker 5: During the third quarter of 2022, it totaled 62.4 million.
During the third quarter of 2022, it totaled $62 4 million.
Speaker 5: This compares to 104.7 million in the prior year period.
This compares to $104 7 million in the prior year period.
Speaker 5: The decrease of approximately 42 million is due to a combination of factors, which include an increase in selling and admin expenses of approximately 23 million, which is driven by an increase in compensation and benefit costs due to increased headcount, and to a lesser extent, increases in marketing and advertising.
The decrease of approximately $42 million is due to a combination of factors, which include an increase in selling and admin expenses of approximately $23 million, which was driven by an increase in compensation and benefit costs due to increased head count and to a lesser extent.
Increases in marketing and advertising spend both contributed to the separation and then back to becoming a standalone publicly traded company.
Speaker 5: both attributed to the separation and in fact of becoming a standalone publicly traded company.
Speaker 5: a decrease in R&D of approximately 1 million, driven by the timing of certain spending.
A decrease in R&D of approximately $1 million driven by the timing of certain spend.
Speaker 5: and interest expense of approximately 20 million that was incurred in the third quarter of fiscal 2022 as compared to zero in the prior year period. Lastly moving-.
And interest expense of approximately $20 million that was incurred in the third quarter of fiscal 2022.
As compared to zero in the prior year period.
Lastly, moving to adjusted EBITDA and margin.
Speaker 5: It totaled approximately 117.9 million and 40.5% for the third quarter of 2022.
A total of approximately $117 9 million.
And 45% for the third quarter of 2022.
Speaker 5: This compares to 143.6 million and 48.7% in the prior year period.
This compares to $143 6 million at 48, 7% in the prior year period.
Speaker 5: Like our performance at the adjusted gross margin line, our adjusted EBITDA margin for the third quarter of 2022 also came in better than we initially anticipated. It was primarily driven by revenue.
Like our performance at the adjusted adjusted gross margin line.
Our adjusted EBITDA margin for the third quarter of 2022 also came in better than we initially anticipated.
It's primarily driven by <unk>.
Revenue in the quarter being better than expected.
Speaker 5: favorable product and geographic mix positively impacting our gross margin.
Favorable product and geographic mix positively impacting our gross margin.
Speaker 5: And R&D expense being slightly lower than originally planned due to the timing of certain spend.
And R&D expense being slightly lower than originally planned due to the timing of certain expense.
Speaker 5: Finally, with respect to our balance sheet and financial condition at quarter end.
Finally, with respect to our balance sheet and financial condition at quarter end.
Speaker 5: As of June 30, 2022, we held approximately $292 million in cash and cash equivalents.
As of June 32022.
We held approximately $292 million in cash and cash equivalents.
Speaker 5: and approximately $1.65 billion in debt.
And approximately $1 65 billion in debt.
Speaker 5: As we created our initial capital structure and leverage levels, we tried to be mindful of our current financial profile.
As we created our initial capital structure and leverage levels, we tried to be mindful of our current financial profile.
Speaker 5: the need to increase the level of investment into the business.
Need to increase the level of investment into the business.
And shareholder returns.
Speaker 5: We have a balance sheet that we can use to invest both organically as well as use for M&A and partnership operations.
We have a balance sheet that we can use to invest both organically as well as used for M&A and partnership opportunities in.
Speaker 5: And as of June 30th, 2022, our last 12 month ended net leverage ratio stood at approximately 2.8 times.
And as of June 32022, our last 12 months ended net leverage ratio stood at approximately two eight times.
Speaker 5: Lastly, this morning we announced that our board of directors approved our inaugural cash dividend, which was set at 15 cents per share.
Lastly, this morning, we announced that our board of directors approved our inaugural cash dividend, which was <unk> 15 per share.
Speaker 5: Given that our gap net income could fluctuate quarter to quarter. We attempted to arrive at a dividend per quarter amount. That would approximate 20% of our of 2022 expected gap knitting.
Given that our GAAP net income could fluctuate quarter to quarter, we attempted to arrive at a dividend.
Per quarter amount that would approximate 20% of our package.
Of 2022 expected GAAP net income.
Speaker 5: We took it to avoid quarter to quarter dividend per share.
To avoid quarter to quarter dividend per share fluctuations.
Speaker 5: We think that we can provide this return to shareholders. While preserving the need to increase the level of investment in the business to drive accelerated constant revenue in the future.
We think that we can provide this return to shareholders while preserved.
The level of investment in the business to drive accelerated growth.
Speaker 5: all while maintaining a very strong liquidity profile.
In the future.
All while maintaining a very strong liquidity profile.
Speaker 5: That completes my prepared remarks as it relates to the historical finance.
That completes my prepared remarks as it relates to historical financial performance.
Speaker 5: Next, I would like to outline in fact, the financial guidance. On slide nine.
Next I would like to outline and factor.
Financial guidance on slide nine.
Okay.
Speaker 5: Unlike the first half of 2020 results, our second half of 2022 guidance attempts to take into consideration the various costs that Invecto will incur moving forward as dependent publicly traded companies.
Key assumptions.
Unlike the first half of 2020.
Good results, our second half of 2022 guidance attempts consideration the various costs and Baxter will incur moving forward.
Publicly traded company.
Speaker 5: This includes various contract manufacturing agreements that we will have in place with BD, which result in third-party revenue for Invecta at very little gross margin.
This includes various contract manufacturing agreements that we will have in place with PD, which result in third party revenue for Ambac.
At very little gross margin.
Speaker 5: while certain other supply agreements are for inputs that IMBECTA needs to obtain from BD, such as cannulas, which are used in IMBECTA's product law.
While certain other supply agreements are for inputs that ambac to needs to obtain from BD, such as <unk>, which are used in abaxis product offerings.
Speaker 5: In addition to these contracting and advancing and supply agreement impacts, our second half of 2022 financial guidance also assumes expenses that we will incur because of the leads of our whole truth and the braska facility from the
In addition to these contract manufacturing and supply agreement impacts.
Our second half of 2022 financial guidance also assumes expenses that we will incur because of the lease of our whole fruits, Nebraska facility from DB.
Speaker 5: as well as expenses we will incur because of BE continuing to factor certain accounts receivable on Invectus behalf.
As well as expenses, we will incur because of <unk> continuing to factor certain accounts receivable on investors' behalf.
Speaker 5: Furthermore, our second half of 2022 financial guidance also assumes six months worth of transition services expense related to a variety of activities that BD will perform or impact.
Furthermore, our second half of 2022 financial guidance also assumes six months worth of transmission services expense related to a variety of activities that BD will perform for ambac.
Speaker 5: The transition services expenses were determined and cost bid out at a very detailed line item level.
The transition services expenses were determined and cost it out at a very detailed line item level.
Speaker 5: These TSAs can last for a period not to exceed two years and can be terminated earlier by Invecta with a defined notice period.
<unk> can last for a period not to exceed two years and can be terminated earlier buying better with a defined notice period.
Speaker 5: As part of our second half of 2022 financial projections.
As part of our second half of 2022 financial projections.
Speaker 5: We also included estimates associated with costs that we will anticipate incurring as we stand up our own public homes.
We also included estimates associated with cost that we will anticipate incurring as we stand up our own public company.
Speaker 5: These costs include expenses associated with stock-based compensation, external audit fees, stock exchange, listing fee. So, this wont be too loud or we are just trying to identify.
These costs include expenses associated with stock based compensation external Rfps stock exchange listing fees.
Speaker 5: And most notably, the expenses associated with the creation of various corporate functions and infrastructure, such as finance, treasury, tax, HR, IT, legal, supply chain, regulatory and quality, etc.
And most notably the expenses associated with the creation of various corporate functions and infrastructure, such as finance Treasury tax HR.
Legal supply chain regulatory and quality et cetera.
Speaker 5: Moreover, as we prepared and updated our second half of 2022 financial guidance, we also attempted to take into consideration the impact that COVID-19 is still having on certain markets.
Moreover, as we prepared and updated our second half of 2022 financial guidance. We also attempted to take into consideration the impact that COVID-19 is still having on certain markets.
Continued geopolitical concerns as.
Speaker 5: as well as the negative impact stemming from inflation and supply changes from...
As well as the negative impact stemming from inflation and supply chain disruptions.
Speaker 5: We've attempted to give due consideration to these elements, but we realize that the future trajectory of these factors is unpredictable.
We've attempted to cute due consideration for these elements, but we realize that the future trajectory of these factors is unpredictable.
Speaker 5: Lastly, given that approximately half of Invectus business is derived internationally, as well as the fact that several foreign currency exchange rates have changed significantly since we initially provided financial guidance for the second half of fiscal year 2022.
Lastly, given that approximately half of them back. This business is derived internationally as well as the fact that several foreign currency exchange rates have changed significantly since we initially provided financial guidance for the second half of fiscal year 2022.
Speaker 5: I wanted to take a moment and highlight what we assumed for some of the key currency pairs that affect our business.
I wanted to take a moment and highlight what we assumed for some of the key currency pairs that affect our business.
Speaker 5: Those being the Euro-dollar, dollar Japanese yen, and dollar Chinese Yuan.
Those being the euro dollar.
Japanese yen.
Chinese one.
Speaker 5: We based our updated second half of 2022 financial estimates on spot rates that existed near the beginning of August .
We based our updated second half of 2022 financial estimates on spot rates that existed near the beginning of August <unk>.
Speaker 5: including a euro to dollar rate of approximately 105 for the second half of the year and approximately 102 in the fourth quarter.
Including a euro to dollar rate of approximately 105 for the second half of the year and approximately 102 in the fourth quarter.
Speaker 5: a dollar to Japanese yen rate of approximately 131 for the second half of the year, and approximately 136 in the fourth quarter.
A dollar to Japanese yen rate of approximately 131 for the second half of the year and approximately $1 36 in the fourth quarter.
Speaker 5: And $1 to Chinese Yuan rate of approximately 6.61 for the second half of the year and approximately 6.71 for the fourth quarter.
And $1 to Chinese won rate of approximately 661 for the second half of the year and approximately $6 71 for the fourth quarter.
Speaker 5: These assumptions compare to second half of 2021 of approximately 1.19, 109, and 6.5, respect.
These assumptions compare to second half of 2021.
Of approximately $1 one nine <unk>.
109, and six 5% respectively.
Speaker 5: Now that I've outlined some of our key assumptions, I'd like to now take you through our updated financial guidance for the second half of fiscal 2022 and provide some perspective as to what some of the key drivers of change are as compared to our previously provided financial guidance.
Now that I've outlined some of our key assumptions I would like to now take you through our updated financial guidance for the second half of fiscal 2022 and provide some perspective as to what some of the key drivers of change are as compared to our previously provided financial guidance.
Beginning with revenue.
Speaker 5: We are reaffirming our previously provided as reported revenue amount. As we continue to expect to generate approximately 555 million. During the second half of fiscal 2022.
We are reaffirming our previously provided as reported revenue amount as we continue to expect to generate approximately $555 million during the second half of fiscal 2022.
Speaker 5: This comes despite significant fluctuations in various FX rates since we last provided guidance, which we now expect to be a headwind of approximately 4% in the second half of the year as compared to the prior year period, or an incremental FX headwind of approximately 50 basis points as compared to our previous financial guidance.
This comes despite significant fluctuations in various FX rates since we last provided guidance, which we now expect to be a headwind of approximately 4% in the second half of the year as compared to the prior year period.
We're an incremental FX headwind of approximately 50 basis points as compared to our previous financial guidance.
Speaker 5: Well, from a privacy perspective, I'm pleased to say that we are raising our expectation....second half of the year by 50 basis...
While from a.
C perspective, I am pleased to say that we are raising our expectation for the second half of the year by 50 basis points as we now expect to see a decline of approximately 3% during the second half of fiscal 'twenty.
Speaker 5: As we now expect to see a decline of approximately 3% during the second half of fiscal 2020 as compared to the second half fiscal 2021.
As compared to the second half of fiscal 2021.
Speaker 5: The raise in our constant currency representations for the second half of the fiscal year come even though we generate approximately 5M dollars less of contract meaning. New with the.
The raise in our constant currency revenue.
Patients for the second half of the fiscal year come even though we had balanced to generate approximately $5 million less of contract meaning.
Revenue with BD.
Speaker 5: Had the amount of contract maintenance and revenue remained consistent to our prior expectation, we expect that constant currency revenue growth would have been better by an additional.
Had the amount of contracting.
Revenue remain consistent to our prior expectation.
Constant currency revenue growth would have been better by an additional <unk>.
Speaker 5: The ability for us to raise our constant currency guidance is due to our base business, which is performing slightly better than we initially anticipated.
<unk>.
The ability for us to raise our constant currency guidance is due to our base business, which is performing slightly better than we initially anticipated.
Speaker 5: And given that we only have one quarter left in fiscal 2022, our updated financial guidance for the second half of 2022 implies a fourth quarter revenue amount of approximately $264 million.
And given that we only have one quarter left in fiscal 2022, our updated financial guidance for the second half of 2022 implies a fourth quarter revenue amount of approximately $264 million.
Speaker 5: The sequential deceleration between Q3 revenue and our expectations for Q4 are due to a combination of factors including the timing of shipments and orders that Deb referenced earlier that positively impacted Q3, as well as larger expected sequential FX headwinds being to the primary drive.
The sequential deceleration between Q3 revenue and our expectations for Q4 are due to a combination of factors, including the timing of shipments and orders that Deb referenced earlier that positively impacted Q3.
As well as larger expected sequential FX headwinds being two of the primary drivers.
Speaker 5: And when comparing Q4 against prior year results, it is important to understand that we are still dealing with uneven comps, given COVID-related peaks and troughs that impacted revenue timing in prior and current year periods.
And when comparing Q4 against prior year results. It is important to understand that we are still dealing with uneven comps given COVID-19 related peaks and troughs that impacted revenue timing and prior and current year periods.
Speaker 5: That said, for the entirety of the second half of 2022, as compared to our previous guidance, our base business is expected to do slightly better, thereby allowing us to raise our constant currency revenue performance expectations.
That said for the entirety of the second half of 2022 as compared to our previous guidance. Our base business is expected to do slightly better, thereby allowing us to raise our constant currency revenue performance expectations.
Turning to adjusted gross margin.
Speaker 5: We are raising our expectations for adjusted gross margin, as we now expect adjusted gross margin to be in the mid-60s during the second half of this fiscal year.
We are raising our expectations for adjusted gross margin as we now expect adjusted gross margin to be in the mid sixties during the second half of this fiscal year.
Speaker 5: That compares to our initial guidance, which called for second half of the fiscal year adjusted gross margin to be in the low six.
That compares to our initial guidance, which called for second half of the fiscal year adjusted gross margin to be in the low sixty's.
Speaker 5: Given our performance during a 3rd quarter, this would imply that our 4th quarter adjusted gross margin would be in the low 6th quarter.
Given our performance during the third quarter. This would imply that our fourth quarter adjusted gross margin would be in the low sixty's.
Speaker 5: The expectation for a sequential decline in adjusted gross margin from Q3 to our forecast for Q4 is primarily due to contract manufacturing and supply agreement impacts, most notably the impact of increased canola costs. Product and geographic mix shifts between quarters.
The expectation for a sequential decline in adjusted gross margin from Q3 to our forecast for Q4 is primarily due to contract manufacturing and supply agreement impacts most notably the impact of increased cannula costs.
Product and geographic mix shifts between quarters.
Incremental investments in standup costs.
Speaker 5: and the continued negative incremental impacts of inflation and increased labor and material costs.
And the continued negative incremental impacts of inflation and increased labor and material costs.
Speaker 5: with each of these factors contributing approximately equally to the expected sequential decline in Q3 to Q4 adjusted gross margin.
With each of these factors contributing approximately equally to the expected sequential decline in Q3 to Q4 adjusted gross margin.
Moving next to TSA expense.
Speaker 5: Here, our thoughts are unchanged as we continue to expect to incur approximately 35 million in expense with roughly half of that expense expected to be incurred during Q4.
Here, our thoughts are unchanged as we continue to expect to incur approximately $35 million in expense with roughly half of that expense expected to be incurred during Q4.
Speaker 5: Finally, that takes me to adjusted EBITDA margin, which, like adjusted gross margin, we are raising from our previous expectations.
Finally that takes me to adjusted EBITA margin, which like adjusted gross margin, we are raising from our previous expectation.
Speaker 5: Given the strong results we achieved during the third quarter, we are increasing our expectations from our previous guidance that adjusted EBITDA margin would be in the low 30s to our current expectation which now calls for second half of the year adjusted EBITDA margin to be in the mid 30s.
Given the strong results we achieved during the third quarter, we are increasing our expectations from our previous guidance that adjusted EBITDA margin would be in the low thirty's to our current expectation, which now calls for second half of the year adjusted EBITDA margin to be in the mid Thirty's.
Speaker 5: As we look forward, our updated guidance for the second half of fiscal 2022 adjusted EBITDA margin would imply a low 30s margin during Q4.
As we look forward our updated guidance for the second half of fiscal 2022, adjusted EBITDA margin would imply a low thirties margin during Q4.
Speaker 5: with the expected sequential decline from Q3 to Q4, primarily driven by our fourth quarter adjusted gross margin, which is expected to be in the low 60s.
With the expected sequential decline from Q3 to Q4, primarily driven by.
Our fourth quarter, adjusted gross margin, which is expected to be in the low sixty's.
Speaker 5: and a sequential increase in operating expenses, primarily due to additional R&D expense, as well as additional expenses incurred associated with standing up in vector as an independent company.
And a sequential increase in operating expenses, primarily due to additional R&D expense as.
As well as additional expenses incurred associated with standing up and back up as an independent company.
Speaker 5: In closing, IMBECTA continues to be very well positioned to exit fiscal year 2022 with a strong financial profile as we complete our first six months as an independent company.
In closing <unk> continues to be very well positioned to exit fiscal year 2022, with a strong financial profile as we complete our first six months as an independent company.
Speaker 5: That completes my prepared remarks, and at this time, I'd like to turn the call over to Deb for some final comments.
That completes my prepared remarks and at this time I'd like to turn the call over to Deb for some final comments.
Speaker 4: Wrapping up our discussion on slide 10, you will see that our capital allocation priorities are set with the intention to make strategic investments to accelerate our long-term growth profile.
Thank you Jake.
Wrapping up our discussion on slide 10, you will see that our capital allocation priorities are set with the intention to make strategic investments to accelerate our long term growth profile.
Speaker 4: We expect to do this through commercial investments, the introduction of next-gen products, and M&A.
We expect to do this through commercial investments the introduction of <unk> products and M&A.
Speaker 4: First, we can continue to expand and penetrate through our core business.
First we can continue to expand and penetrate through our core business.
Speaker 4: This includes e-commerce investments, as well as educating people with diabetes and other stakeholders on the benefits of using a new device, Philippine Jackson.
This includes e-commerce investments as well as educating people with diabetes and other stakeholders on the benefits of using a new device for the injection.
Speaker 4: Second, we intend to increase our investment in R&D.
Second we intend to increase our investment in R&D and.
Speaker 4: And we remain excited about our patch hump that is being developed for the type 2 more.
And we remain excited about our patch pump that is being developed for the type two market.
Speaker 4: Finally, we continue to seek partnerships and acquisitions where we can use our manufacturing strengths and commercial capabilities to add value.
Finally, we continue to seek partnerships and acquisitions, where we can use our manufacturing strengths and commercial capabilities to add value.
Speaker 4: Before we open up the line for Q&A, I would like to extend my thanks to the Global Embector team for everything they have done and continue to do to serve people with diabetes while we stand up Embector as an independent company.
Before we open up the lines for Q&A.
I'd like to extend my thanks to the global <unk> team for everything they have done and continue to do to serve people with diabetes, while we stand up <unk> as an independent company.
Speaker 4: With that operator, we will now open up the line for questions.
With that operator, we will now open up the lines for questions.
Speaker 2: As a reminder, TASC a question, please press star 11.
As a reminder to ask a question. Please press star one one.
Speaker 2: Our first question comes from Travis Deed with Bank of America. Your line is open.
Our first question comes from Travis Steed with Bank of America. Your line is open.
Speaker 6: Hey, good morning everybody. Congrats on a good quarter. I guess I'd start with maybe just talk about the performance in the quarter. You know, the ability to kind of raise the guidance on, you know, the better performance in the quarter. It seems like on the margin side, most of the second half guide raise is all because of the Q3 outperformance. And you're assuming some of the similar things for Q4. And so just trying to think through how.
Hey, good morning, everybody congrats on a good quarter I guess I'd start with maybe just talk about the performance in the quarter the ability to kind of raise the guidance on <unk>.
The better performance in the quarter and it seems like on the margin side most of the second half guide raise at all because of the Q3 outperformance and you're assuming some of the summer.
Thanks for Q4.
Speaker 6: how that could actually impact some of the longer term, if you're view on the long term margins are kind of the same place, the low 60% by 2024, and 30% by on evid.margin.
So just trying to think through how how that could actually impact some of the longer term. If your view on the long term margins are kind of the same place below 60% by 2024 and 30% by an EBITA margin.
Speaker 4: Hi Travis, this is Dev, thanks for the question. Maybe I'll start off and I'll ask Deick to jump in here.
Hi, guys. This is David Thanks for the question, maybe I'll start off and I'll ask Nick to jump in here.
With respect to our thoughts on the longer term that we laid out in March nothing has changed.
And with respect to this quarter's performance that we just disclosed today those are all aligned with the guidance that we provided earlier this year when we when you provided guidance for the second half of the year.
Maybe Jay if you can comment on some specifics on the quarter.
Yes, so so Travis again, thanks for thanks for the question.
I think really across different line items within within the P&L I think for our first quarter as an independent entity.
Speaker 5: They did largely come in better than expected. I think from a revenue perspective, some of that had to do with the fact that, as Deb mentioned in his prepared remarks, we had...
They did largely come in better than expected.
From a from a revenue perspective, some of that had to do with the fact that it's dead.
I've mentioned in his prepared remarks, we had some some orders that ended up just from a timing perspective falling into Q3.
Speaker 5: some orders that ended up just from a timing perspective falling into Q3 as compared to say what we previously would have expected if being in Q4. Now that said, we provided guidance for the entirety of the second half of the year and as compared to that prior guidance, our business, our base business is doing slightly better than expected. So I think off to a good start.
As compared to say, what we previously would've expected it being in Q4 now that said.
We provided guidance for that for the entirety of the second half of the here and and as compared to that prior guidance our business. Our base business is doing slightly better than expected. So so I think off to a good start in.
Speaker 5: and candidly had the contract manufacturing revenue to BD, which we've always said we viewed as sort of transient nature, had that remained consistent at our prior guide of roughly 15 million.
And candidly had had the contract manufacturing revenue to BD, which which we've always said, we viewed as sort of a transient in nature and that remained consistent at our prior guide of roughly $15 million.
Speaker 5: instead of now, it's expecting 10 million in the second half of the year. You know, that would have added another, let's call it, 80 basis points or so to our constant currency revenue performance. So I think from an underlying base business standpoint, you should think of our kind of core injection franchise in doing something north of, let's call it 1%, 1 to 1 1 1 1 1 1 1 2% give or take better than what we previously anticipated.
Instead of now expecting $10 million in the second half of the year that would have added another let's call. It 80 basis points or so to our constant currency revenue performance. So I think from an underlying base business standpoint, you should think of our of our kind of core injection franchise doing something north of let's call. It <unk>.
1%, one to one 5% give or take better than what we previously anticipated.
Speaker 5: Likewise, I would say, you know, from a from a gross margin and an EBITDA margin.
So a positive start for the year likewise.
Likewise, I would say from a from a gross margin and an EBITDA margin standpoint.
Speaker 5: still very very robust at roughly 70% and a little over 40.5% for the third quarter.
Still very very robust it at roughly 70% and a little over 45% for that for the third quarter. So I think out of the gate and are continuing to manage cost well.
Speaker 5: So I think out of the gate, continuing to manage cost well, continuing to stand up the company, and continuing to drive leverage through the P&L. So very happy to see for our first quarter.
Continuing to stand up the company.
Continuing to drive leverage through that through the P&L, So very happy to see for our first quarter.
Speaker 5: You know, for the guidance for the second half of the year, we tried to be pretty prescriptive in the prepared remarks.
For the guidance for the second half of the year, we tried to be pretty prescriptive in the prepared remarks and talking about what that would imply for.
Speaker 5: and talking about what that would imply for Q4.
Speaker 5: And essentially, it still points people back to a thought that, that the margin profile for and back to the gross margin line will be roughly in that kind of low 60s-ish area and that the adjusted EBITDA margin will be in sort of that low 30s-ish area for the fourth quarter. So nothing changed from our perspective regarding, you know, certainly the longer term outlook.
For Q4.
And essentially it's still point people back to a thought that the.
The margin profile for and back to the gross margin line will be roughly in that kind of low sixty's.
Area and that the adjusted EBITDA margin will be in sort of that well.
<unk> 30 ish area for the for the fourth quarter, So nothing changed from our perspective regarding.
Certainly, though at the longer term outlook.
Speaker 5: Inflation is probably a little bit more of a negative headwind right now than what we would have previously anticipated back when we provided sort of those.
Inflation is probably a little bit more of a negative.
Headwind right now and what we would have previously anticipated back when we provided sort of those those 2024.
Speaker 5: those 2024 goals and objectives back in March. But I think I'm happy to say that nothing has changed regarding our thoughts.
Goals and objectives back in March.
But I think.
I'm happy to say that.
Nothing has changed regarding our thoughts.
Speaker 5: concerning the financial profile of them back to either really near term or longer term through.
Concerning the financial profile of them back.
Really near term or longer term through 2024.
Speaker 6: All right, that's helpful. And if you think about all the different buckets that you gave, the contract manufacturing agreement, the lease, the TSA, the whole list of things that you gave is kind of baked in. I don't know if there's a way to help quantify the different buckets or the totality of those things and to think about how much of that could roll off next year. And then if there's a Scanlon deal, you do that too and then if there isn't,
Alright, that's helpful and if you think about all of the different buckets that you gave a contract manufacturing agreement belief the TSA. The whole list of things that you gave is kind of baked in I don't know if it's a way to help quantify the different buckets are the totality of those things and to think about how much of that could roll off next year and then.
Speaker 6: Additionally, since you're a new company, I don't know if there's a way to think about FX and how FX changes impact margins. If there's any rule of thumb, you'd love to give on that. I would love to hear that.
Definitely.
Essentially a new company I don't if there's a way to think about.
FX and FX changes impact to margins, if there's any rule of thumb you about pick up on that.
Would love to hear that.
Speaker 5: Sure, so look from an FX standpoint, maybe I'll start there first, but from an FX standpoint, I think that impacted our gross margins, for instance, by roughly somewhere between 200 to 250 basis points negatively year over year in the third quarter.
Sure. So so look from a from an FX standpoint, maybe I'll start there first from an FX standpoint, I think that that impacted.
Our gross margins for instance by by roughly somewhere between 200 to 250 basis points negatively year over year in the.
In the third quarter.
Speaker 5: And from a stand-up cost standpoint, I think we're not necessarily going to provide specific dollar amounts associated with each individual line item. Some of them, obviously, from a TSA standpoint, as we begin to stand up the company, some of the TSAs could fall off. But I would point you back to that move from Q3.
And from a from a standup cost standpoint, I think we're not necessarily going to provide specific dollar amounts associated with with each individual line item.
Some of them, obviously from a TSA standpoint, as we begin to kind of stand up the company.
Some of the TSA is.
Could fall off but.
I would sort of point you back to sort of that move from kind of Q3.
Speaker 5: either gross or EBITDA margins to Q4 as sort of being the main drivers, right? And those were really, I would say, four main items. So the sequential move from kind of Q3 adjusted gross margin to Q4, adjusted gross margin serves as sort of a good proxy at the kind of...
Either gross or EBITDA margins to Q4.
As sort of being the.
The main drivers right.
Those were really I would say four main items so the the <unk>.
Sequential move from kind of Q3 adjusted gross margin for Q4, adjusted gross margin services sort of a good proxy as to kind of where we were sort of pre spin.
Speaker 5: where we were sort of pre-spin to sort of post-spin and the longer term outlook through 2024. So in the third quarter to fourth quarter, we talked about gross margins going from sort of 70% into the low 60s and the fourth being driven by a combination of the supply agreement, probably most notably the cannula cost.
Two sort of post spin and the longer term outlook through 2024, so in the third quarter to fourth quarter, we talked about.
Gross margins going from sort of 70% into the low <unk> in the fourth being driven by a combination of the supply agreements, probably most notably the cannula costs.
Speaker 5: different product and geographic mix shifts, as well as just a variety of different incremental investments and standard costs. And then lastly, obviously the impact of inflation. So each of those we would expect to probably impact Q3 to Q4 about the...
From a product and geographic mix shifts as well as just a variety of different incremental investments in standup costs and then lastly, obviously the impact of inflation. So.
Each of those we would expect.
The impact Q3 to Q4.
About equally.
Speaker 6: Thanks for taking the question and we'll go out to another quarter.
Alright, great alright. Thanks, Thanks for taking my question and congrats on a good quarter.
Thank you.
Speaker 2: Our next question comes from Cecilia Furlong with Morgan Stanley . Your line is open.
Our next question comes from Cecilia furlong with Morgan Stanley . Your line is open.
Great. Good morning, and thank you for taking the questions I wanted to turn back to Jim.
Your comments on the timing of some of the orders the impact in Q3, and really how youre thinking about <unk> contribution to U S versus <unk> on a sequential basis.
Really what you saw in Q3, and how we should think about relative contributions in <unk> and tied in with that too just how youre thinking about both China and some of the other geopolitical.
Potential impacts on the business as well as the potential for pricing.
<unk>.
Hi, Sheila this is Dave again, I'll start off here.
Speaker 4: I do both reach one of the I think topics you had raised so the first one with respect to timing
To go through each one of the I think topic shared raised so far.
The first one with respect to timing of orders.
Speaker 4: You know in our business there is some order order pattern variation that can occur quarter to quarter But frankly it's in line with what we had
In our business. There is some order order pattern variation that can occur quarter to quarter, but frankly, it's in line with what we had.
<unk> would be could potentially happen. When you gave second half guidance and Thats why we gave second half guidance versus quarter to quarter. I think as you think about shifts from Q3 to Q4, and if you will the geography mix between U S and international.
<unk> is likely to shift a little bit more towards internationally in Q4 versus Q3, and it's one of the factors that impact the <unk>.
Quarterly gross margin for Q4.
If you look at it from a certainly a normalized period over 12 months I think you're going to find that the U S and international.
<unk> is well aligned with.
Our expectations that we've set.
Speaker 4: with respect to China and geopolitical concerns.
Previously.
With respect to China and geopolitical concerns.
Speaker 4: You know, again, when we gave guidance for the second half of the year.
Again, when we gave guidance for the second half of the.
Speaker 4: You know, we knew that there were COVID-19 disruptions going on in China. You may remember at that time, you know, lockdowns were still pretty fresh in everybody's mind. And...
We knew that they were COVID-19 disruptions going on in China, you made amendment at that time.
Lockdowns are still pretty fresh in everybody's mind and.
Speaker 4: You know, the way things have played out in China again have been within the range of outcomes that we expected.
Things have played out in China again have been within the range of outcomes that we had expected clearly it's a fluid situation I think the geopolitical concerns in China.
Speaker 4: Clearly it's a fluid situation. I think the geopolitical concerns in China may have heightened a little bit. We've all read about the drills that impact China, Taiwan. So it's a situation we're watching closely. But certainly even the updated guidance that we've given, we think we've assumed sort of a moderate level of continued impact on the China business.
Heightened a little bit.
We've all read about the deals that impact China, Taiwan say to situations, we are watching closely but certainly even in the updated guidance that we've given we think we've assumed set up some moderate level of continued.
Speaker 4: as a result both of COVID-19 as well as the geopolitical issues.
Impact from the China business as a result, both of COVID-19, as well as geopolitical issues.
Speaker 4: And that frankly, we will finally with respect to pricing.
And then.
Finally with respect to pricing.
Speaker 4: You know, I did comment that we had some favorable price that we got in the most recent quarter.
I did comment that we had some favorable price that we got in the most recent quarter.
Speaker 4: for in the US and then some parts of Asia. And so.
In.
First in the U S and then some parts of Asia and so.
Speaker 4: Again, in line with my previous commentary, where we get a chance to adjust and optimize price, certainly we do. That happens on an ongoing basis, given just the diversity of the geographic revenue that we have and the diversity of customers that we have. Some of our contracts allow us to take price periodically, and so we exercise that when possible. And you saw the favorable impact of that in the quarter that we just reported. Jake, anything you-
In line with my previous commentary.
Where do we get a chance to do adjust and optimize price certainly we do that.
That happens on an ongoing basis, given just the diversity of the geographies revenue that we have and the diversity of customers that we have.
Some of our contracts allow us to take price periodically until we exercise that.
When possible and you saw the favorable impact of that in the quarter that we disappointed.
Jacob anything you'd like to add that.
Speaker 5: So the only thing I think I'd add is just maybe just a little bit more color regarding, you know, sort of sequential move in kind of Q3, maybe revenue dollars to what we are.
So the only thing I think I would add is just maybe just maybe just a little bit more color regarding sort of the sequential move in kind of Q3, maybe revenue dollars to what we are are essentially implying for Q4.
Speaker 5: are essentially implying for Q4. And I think that that's really just due to a handful of items, you know, the timing issue that that Deb's mentioned.
And I think that Thats really just due to a handful of items.
The timing issue that <unk> mentioned.
Speaker 5: Second, we would expect there to be, sequentially, more of an incremental FX headwind from Q3 to Q4.
Second we would expect there to be sequentially more of an incremental FX headwind from Q3 to Q4.
Speaker 5: you know, we would expect there to be more of a net headwind between
And then lastly, we would expect there to be more of a net headwind between the rebate reserve adjustments that we would have generated.
Speaker 5: the rebate reserve adjustments that we would have generated in the fourth quarter of last year versus sort of the, there's going to be incremental rebate reserve adjustments that we are going to see.
In the in the fourth quarter of last year versus sort of the.
There's going to be incremental rebate reserve adjustments that we are going to see.
Speaker 5: sort of negatively impacting us in the fourth quarter. So, but all that said, I think we're very pleased that.
Sort of negatively impacting us in the fourth quarter.
No.
But all that said I think we're very pleased that.
Speaker 5: for the first quarter as a publicly traded company that we have the opportunity to increase our second half of the year, constant currency revenue expectations and that's really all due to slight improvements in that piece.
For the first quarter as a publicly traded company that we have the opportunity to increase our second half of the year constant currency revenue expectations.
And that's really all due to slight improvements in that piece of business.
Speaker 7: Great. And then if I could follow up as well, and appreciate your commentary on R&D and just the timing there. But can you speak to just your expectations? Those for 4Q, as well as 2023, fiscal 23, as you ramp contributions to the patch pump program, 3Q was a bit lighter than we were expecting. So just a little more commentary on how you envision that ramping, both through the balance of this year and into 23.
Great and then if I could follow up as well and I. Appreciate your commentary on R&D and just the timing there, but can you speak to just your expectations for <unk> as well as 2023 fiscal 'twenty three as you ramp contributions to the patch pump program <unk> was a bit lighter than you were expecting so just.
Well, that's my commentary on how you envision that ramping both debt.
Through the balance of this year and into 'twenty.
Speaker 4: Yeah, so let me let me talk about Q3 and Q4 and R&D. So first of all, our patch from program is progressing as we would expect it to continue to be pleased with the progress that we are making in the development of that product. With respect to R&D spend in Q3 and Q4, again, Celia, it's a timing, it's purely a timing thing in terms of total our expectations haven't changed with respect to what we...
Yes, So let me let me talk about Q3 and Q4 in R&D. So first of all allow patch can program is progressing as we would expect it to continue to be pleased with the progress that we're making in the development of that product with respect to R&D spend in Q3 and Q4 again, it's a timing issue.
Purely a timing thing in terms of total our expectations haven't changed with the with respect to what we expect to spend on R&D for this year, So I wouldn't I wouldn't.
Speaker 4: to spend on R&D for this year so I wouldn't
Speaker 4: you know, draw any big conclusions from the timing shift from Q3 to Q4 for R&D spend. And respectfully, with respect to FY23, we'll comment on that more specifically when we have our Q4 earnings call and we set guidance for FY23.
Draw any big conclusions from the from the timing shift from Q3 to Q4, R&D spend and and respectfully with respect to our slide 23.
We'll comment on that more specifically when we have our Q4 earnings call and we said guidance, Florida for 23.
Speaker 4: I would say though that our expectations that we laid out in March, you know, through sort of what we call long term then FY24, none of that has changed with respect to either revenue or we had laid out expectations for R&D. So that hasn't changed either. But I said, respectfully, I'll reserve our comments for FY23 when we speak in a little over 90 days.
I would say, though that expectations that we laid out in March.
Through sort of what we call long term than FY 'twenty four none of that has changed with respect to either revenue or we had laid out expectations for R&D, so that hasnt changed either.
So respectfully.
I'll comment on them.
For FY 'twenty three when we speak.
In a little over 90 days.
Speaker 7: Okay, understood. Congrats on the quarter and thank you for taking the questions. Thank you, Cecily.
Okay understood congrats on the quarter and thank you for taking the questions. Thank.
Thank you Cecilia.
Speaker 2: As a reminder, to ask a question, please press star 1-1.
As a reminder to ask a question. Please press star one one.
Speaker 2: Our next question comes from Marie Tebo with BTIG. Your line is open.
Our next question comes from Murray <unk> with <unk>. Your line is open.
Speaker 8: Good morning, Deb. Good morning, Jake. And I'll add my congrats here, also on a strong quarter, nice to see. I wanted to ask maybe a very high level question. You've given us some commentary around timing shifts and some thoughts on standing up costs for the public company. But just at a very high level, I'd love to hear a few months here into the transition. What's gone according to plan? And what has surprised you either to the upside or downside about this whole process?
Good morning, Dan Good morning, Jake and I will add my congrats here also on a strong quarter nice to see.
Wanted to ask maybe a very high level question, you've given us some commentary around timing shifts.
Scotland standing up costs for the public company, but just at a very high level I'd love to hear a few months here.
Into the transition of whats gone according to plan and what has surprised you either to the upside or downside about this whole process.
Speaker 4: Mary, this is David. Thanks for your comments and for the question.
Larry This is Dave Thanks for your comments and for the question.
Speaker 4: Look, at a high level, I must say I'm very, very pleased with how our team has performed in the first quarter as an independent company. This business has been part of VD for almost 100 years. So now you're separate and you stand up a company and I'm very pleased with how the team has performed as I said.
Yeah.
At a high level.
I must say I'm very very pleased with how our team has performed in the first quarter as an independent company.
This business has been part of <unk> for almost 100 years. So now youre separate and you stand up a company and I'm very pleased with how the team has performed as I said.
Speaker 4: In terms of positive surprises, the morale and just the sort of leaning forward attitude of the team continues to drive our business forward. I think on the negative side, you know.
In terms of positive surprises the morale and just the sort of leaning forward attitude of the team continues to drive our business forward.
On the negative side.
Speaker 4: Candidly, it would have been nice to start off as an independent company without the raft of geopolitical issues, the inflationary transportations, disruptions that I know all companies are facing with, but sort of having to wrestle through all of that in the first quarters an independent company, let's just say I wouldn't have been disappointed to avoid.
No.
Candidly it would have been nice to start off as an independent company without the RASK of geopolitical issues the inflationary trends.
Transportation disruption that I know all companies are facing with.
But sort of having to wrestle through all of that in the first quarter as an independent company, let just say I wouldn't have been disappointed to avoid.
Speaker 8: Of course, makes sense. And then maybe I can ask my follow-up here. Maybe on a timely issue, obviously hearing news about a pricing cap on insulin here in the US, is that going to have any impact on your business at all? Does that present a tail end at all? I'd just love to hear your thoughts on that. Thanks,
Of course, it makes sense.
And then maybe I can ask my follow up here.
Maybe on a timely issue obviously, we're hearing news about the pricing cap on insulin here in the U S is that going to have any impact on your on your business at all does that present. Thank Carolyn just love to hear your thoughts. Thank you.
Speaker 4: Yeah, look in general, anything that expands access to insulin so that people can, people with diabetes can manage the diabetes appropriately will help us. Right? Also, my hypothesis Maria is that, you know, pricing sort of caps and insulin.
Look in general anything that expands access to insulin so that people can people with diabetes scan can manage their diabetes appropriately would help US right also might have thought this is murray.
Pricing sort of gaps in insulin going to help more people get access to insulin than previously, which again sort of the hypothesis would be I mean, these are likely people that will be using injection devices.
Speaker 4: more people get access to insulin than previously, which again, sort of the hypothesis would be, I mean, these are likely people that will be using injection devices to deliver their insulin. And so could be a tailway. Now, you know, all of this is still being wrestled through the legislative process. So it's not something we are dialing in into any of our projections. But certainly, I would expect it to be a net positive.
Deliver that incident, and so could be a tailwind now.
All of this is still being vessel through the legislative process. So it's not something we are dialing in into any of our projections, but certainly I would expect it to be a net positive.
Speaker 8: All right, very good. I'll jump back into you. Thank you. Thank you.
Alright, very good I'll jump back in queue. Thank you. Thank you Murray.
Speaker 2: There are no further questions. I'd like to turn the call back over to Dev's daughter,IL fall with her daughter Andrea andTerryiens.
There are no further questions I'd like to turn the call back over to Dev <unk> for any closing remarks.
Speaker 4: Thank you all for attending our call and for your interest in our company. It's something we deeply appreciate. I also want to end again by thanking our team for doing everything that they have done to continue to support people with diabetes even as we stand up and back as its own independent separate company. Have a great day all and we look forward to speaking with you again next quarter.
Thank you all for attending our call and for your interest in our company. It's something we deeply appreciate I also wanted to end again by thanking our team for doing everything that they have done to continue to support people with diabetes, even as we stand at the <unk> as its own independent and separate company.
Have a great day, all and we look forward to speaking with you again next quarter.
This concludes the program you may now disconnect.
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